Report: VOD killing DVD rentals and sales

Video-on-demand has gutted brick-and-mortar DVD rental companies, it continues to undermine DVD sales, and now it seems VOD is punching a hole in the kiosk approach, as well.

Online VOD subscription revenue is expected to approach $3.5 billion by 2014, according to a new report from In-Stat. U.S. TV download revenue will more than triple between 2010 and 2014.

Multichannel video programming distributors (MVPDs) and streaming companies like Netflix are making on-demand so easy that they're even cutting into the business of RedBox, an operation that was built on making physical DVD rental as simple as pausing a moment as you walk into McDonald's or your neighborhood grocery store.

The thing is, there are a lot of competitors scrabbling for the biggest slices in the pie. In-Stat doesn't use the term, but it describes a free-for-all among MVPDs, programmers, video streaming specialists that rent content and video streamers that sell content.

Online a la carte rental of TV episodes will directly compete with online subscription TV services, such as Hulu Plus and Netflix, "and may detrimentally impact the use of TV Everywhere services," In-Stat reported. Apple iTunes, Amazon, Vudu and CinemaNow are going to complicate the mix by selling content.

Home video rentals have been declining for five years – Hollywood Video is dead, and Blockbuster has just emerged from Chapter 11 and is struggling to hang on.

The decline in sales of DVDs has been going on for some time, but the numbers from In-Stat suggest the trend is accelerating. The research group expects double-digit declines in annual retail sales of physical discs, resulting in a drop of $4.6 billion in revenue from 2009 to 2014.

To replace retail DVD revenue losses, the online digital paid video download and streaming segment, (which includes both purchase and rental) is expected to show high revenue growth. Annual revenue is forecast to grow from $2.3 billion to $6.3 billion within five years, says In-Stat.

"Video disc rentals will continue their significant decline," says Keith Nissen, principal analyst with In-Stat. "Netflix is already shifting its focus to online streaming, and RedBox is evaluating a similar strategy. The convenience and utility of the online offerings are simply too compelling. Online rentals permit the selection of any movie or TV program from the video-on-demand library. Ultimately, it will be impossible for physical disc kiosks to compete with the in-home or in-store download-to-rent business model."

Some of In-Stat's other research findings include:

Premium channels (HBO, Showtime, etc.) are in competition with online video subscription services for both subscriber spending, as well as movie licensing rights.

The emergence of electronic sell-through for online video purchases and rentals will transform the digital entertainment industry over the next five years.